WEEK – 3 AND 4

RISK IDENTIFICATION
RISK MANAGEMENT TEAM TEACHING 2023

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INTRODUCTI
ON

What is the Risk Management process?

• The Risk Management Process consists of a series of

steps that, when undertaken in sequence, enable
continual improvement in decision-making.
ST E P S O F T H E RI S K M A N A
GEMENT PROCESS
S T E P-
COMMUNIC
AT E A N D C O N
S U LT
• Co mmunicat io na
n d c on s u l ta t i o n a
im s t o identify who
should be involved in
assessment of r i s k ( i n c
l u d i n g
identification,analysis and
evaluation) and it should
engage those who will be
involved in the treatment,
monitoring and review of
risk.
S T E P- C O M M U N I C AT E AND CO
N S U LT
• As such, communication and consultation will be reflected in
each step of the process described here.

• As an initial step, there are two main aspects that should

beidentified in order to establish the requirements for the
remainder of the process.

• These are communication and consultation aimed at

A. Eliciting risk information

B. M a n a g i n g st ake h o l perceptions fo
d e r management of risk. r
[Link] RI S K INFO
R M AT I O N
• Communication and consultation may occur within
the organization or between the organization and its
stakeholders.

• It is very rare that only one person will hold all the
information needed to identify the risks to a business
or even to an activity or project. therefore important
to identify the range of stakeholders who will
assist in making this information complete.
B. MANAGING S TA K E H O L D E R PER
CEPTIONSFOR MANAGEMENT OF
RI SK .
T I P SF O R E F F E C T I V E COMMUNI
C AT I O N A N D C O N S U LTAT I O N
• Determine at the outset whether a
communication strategy and/or plan is required

• D e te r m in eth e be s t m e th o d o r m e d i a f
o r communication and consultation

• The significance or complexity of the issue or activity

in
question can be used as a guide as to how much
communication and consultation is required: the
more complex and significant to the organization,
the more detailed and comprehensive the
requirement.
S T E P - E S TA B L
I S H T H EC O N T E
XT
• provides a five-step process to
assist with establishing the context
within which risk will be identified.

1. Establish the internal context

2. Establish the external context

3. Establish the risk management

context

4. Develop risk criteria

5. Define the structure for

risk analysis
1 . E S TA B L I S H THE INTERN
A LC O N T E X T
• As previously discussed, risk is the chance of
something happening that will impact on objectives.

• As such, the objectives and goals of a business, project

or activity must first be identified to ensure that all
significant risks are understood.

• This ensures that risk decisions always support the

broader goals and objectives of the [Link]
approach encourages long-term and strategic thinking.
1 . E S TA B L I S H THE INTERN
A LC O N T E X T
• In establishing the internal context, the business owner
may also ask themselves the following questions:

1. Is there an internal culture that needs to be considered?

For example, are staff Resistant to change? Is there a
professional culture that might create unnecessary risks for
the business?

2. What staff groups are present?

3. What capabilities does the business have in terms of

people, systems, processes, equipment and other
resources?
2 . E S TA B L I S H THE EXTERN
AL CONTEXT

• This step defines the overall environment in which a

business operates and includes an understanding of
the clients’ or customers’ perceptions of the business.
An analysis of these factors will identify the
strengths, weaknesses, opportunities and threats to
the business in the external environment.
2 . E S TA B L I S H THE EXTERN
AL CONTEXT
A business owner may ask the following questions
when determining the external context:

• What regulations and legislation must the business comply

with?

• Are there any other requirements the business needs to comply

with?

• What is the market within which the business operates? Who are
the competitors?

• Are there any social, cultural or political issues that need to

be considered?
3 - E S TA B L I S H T H E RI S K MANA
GEMENT CONTEXT

• Before beginning a risk identification exercise, it is

important to define the limits, objectives and scope of
the activity or issue under examination.

• For example, in conducting a risk analysis for a new

project, such as the introduction of a new piece of
equipment or a new product line, it is important to
clearly identify the parameters for this activity to
ensure that all significant risks are identified.
[Link] RI S K C
RITERIA

• Risk criteria allow a business to clearly define

unacceptable levels of risk. Conversely, risk criteria
may include the acceptable level of risk for a specific
activity or event. In this step the risk criteria may be
broadly defined and then further refined later in the
risk management process.
[Link] THE STRUC
TURE F O RR I S K A N A LY S I S

• Isolate the categories of risk that you want to manage.

This will provide greater depth and accuracy in
identifying significant risks.

• The chosen structure for risk analysis will depend

upon the type of activity or issue,its complexity and
the context of the risks.
RI S K
I D E N T I F I C AT I
ON

• Risk cannot be managed

unless it is first identified.
Once the context of the b
u s i n e ss h a s b e e n
defined, the next step is to
utilize the information to
identify as many risks as
possible.
R I S KI D E N T I F I C AT I
ON

DEFINITION

• Risk identification is the process of understanding

what potential unsatisfactory outcomes are associated
with a particular project/business

• Risk need to be managed at many levels in an

organisation and on many different occasions
S TA G E - R I S K I D E N T I F I C AT I
ON

1. Risk identification

2. Sources for identifying risks

3. Other procedures for identifying

risks

4. Classification of risks
S TA G E 1 - R I S K IDENTIFIC
AT I O N

How to identify the causes and effects of the risks in

your company?

1. What can Happen?

2. Perception of Risk
R I S K I D E N T I F I C AT I O N - W H AT CA
N HAPPEN
• In this first stage of the methodology, the possible specific causes
of business risks are identified in a systematic manner, together
with the range and possible effects thereof, which an entrepreneur
must confront.

• The proper identification of risks calls for a detailed knowledge of

the company, of the market in which it operates, of the legal,
social, political and cultural environment in which it is set.

• Risk identification must be systematic and begin by identifying

the key objectives of success and the threats that could upset
the achievement of these objectives.
 RI S K I D E N T I F I C AT I O N -
PERCEPTION
• O F RI SK
The perception of risk as a threat is the system most often used in
order to identify it. In this context, managing the risk signifies
installing control systems that will minimize both the likelihood that
adverse events will occur as well as the severity of such events (the
financial loss that would be involved for the entrepreneur). It is a
focus of a defensive nature; its aim is to allocate resources in order to
reduce the likelihood of sustaining adverse impacts.

• From the perception of risk as an opportunity, risk management

signifies using techniques that will maximize the results, limiting
the possible damages or costs. The focus is aggressive in nature.

• Risk management from the perspective of risk as uncertainty is

aimed at minimizing the deviation between the results that en
entrepreneur wishes to obtain and those that he or she actually
does obtain.
S TA G E 2 - S O U R C E S FOR IDE
N T I F Y I N G RI SK S
• Sources of risk are all of those company environments,
whether internal or external, that can generate threats
of losses or obstacles for achieving the company’s
objectives.

• A procedure that facilitates the identification of risks is

to ask oneself, with respect to each of the sources,
whether weaknesses or threats exist in each case.
S TA G E 2 - S O U R C E S FOR IDE
N T I F Y I N G RI SK S
A brief list is set out below:

• Pressure by competitors

• The employees

• The customers

• The new technologies

• Changes in the
environment

• Laws and regulations

• Globalization

• The operations

• The suppliers..
S TA G E 2 - S O U R C E S FOR IDE
N T I F Y I N G RI SK S
The identification of the risk must be systematic
and should begin by:

• Defining the entrepreneur’s objectives

• Analyzing the factors that are key to the business

in order to achieve success

• Reviewing what the weaknesses of the project/business

are and the threats it has to deal with.
S TA G E 2 - S O U R C E S FOR IDE
N T I F Y I N G RI SK S

• For this purpose, it is advisable to make a SWOT

analysis (Strengths, Weaknesses, Opportunities and
Threats); particularly the weak points and the threats
will offer a view of the risks facing the entrepreneur.
S T A G E 3 - O T H E R S PR O C ED U R E S F
ORIDENTIFYING RI SK S
S TA G E 4 - R I S KC L A S S I F I C AT I
ON

• The purpose of the classification of risks is to show

the risks identified in a structured manner, for
example, in relation to their origin, as set out in the
following graph.
S TA G E 4 - R I S KC L A S S I F I C AT I
ON

O R G A N I S AT I O N A L
RISK

S E C TO R /
FINANCE TECHNOLOGY OPER AT I O N A L COMPETITOR
STR AT E G I C
S TA G E 4 - R I S KC L A S S I F I C AT I
ON
SECTOR

• A risk that external factors independent from the entrepreneur’s

management could directly or indirectly influence the
achievement of his or her objectives and strategies to a
significant extent.

• Examples:

• Strong exposure to regulatory changes

• Business fragmentation

• Appearance of new markets

S TA G E 4 - R I S KC L A S S I F I C AT I
ON
• OPERATIONAL:

• The operational risks are associated with the entrepreneur’s ability to convert the
strategy chosen into specific plans, by means of an effective allocation of
resources.

• Examples:

• Need for making an advertising effort

• High staffing costs

• Lack of operational and financial planning

• Tendency toward subcontracting

• Tendency towards concentration

S TA G E 4 - R I S KC L A S S I F I C AT I
ON
• TECHNOLOGY

• This measures the entrepreneur’s exposure to the technological risks

derived from the need to undertake heavy investment in order to
ensure the feasibility of his or her business project within a specific
period of time or the need for training the company’s employees in
the use of the technology.

• Examples:

• Significant investments

• Low level of implementation

• Low level of technological training

S TA G E 4 - R I S KC L A S S I F I C AT I
ON
COMPETITORS:

• The size, the financial and operational capacity of the agents in a

sector determine the degree of rivalry in that sector and set the rules
of the game that any new agent has to consider in order to operate
in the marketplace; this can involve risks for the entrepreneur.

• Examples:

• Appearance of new competitors

• Intense competition

• Specialized competition
S TA G E 4 - R I S KC L A S S I F I C AT I
ON
• SUPPLIERS:

• The role played by the suppliers in the sector could generate risks for an entrepreneur
due to variations in the price of raw materials, to the availability of a variety in the
supply and for a continuous period of time, as well as the degree of concentration of
the suppliers, which will determine the method of payment traditionally accepted in
the sector.

• Examples:

• Exposure to changes in the price of goods

• Dispersion in the supply

• Non-determination of the quality of the service provided Increase in

power of negotiation
Any Questions
 Thank you
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